For the
first time, the combined wisdom of iPredict’s 7000
registered traders is that the Maori Party will leave
parliament after the election on 20 September, with its
expected party vote dwindling below 1%, a big slump in its
chances of winning Wairariki and a new high of 57%
probability that it will win no electorate seats. The combined
Labour/Green vote has improved over the last week and the
Conservative Party has also gained ground, apparently at the
expense of NZ First. Nevertheless, NZ First is still
expected to hold the balance of power and decide whether
National or Labour will lead the next government. The
market is predicting it will opt for the former.

Economic Context

Growth
expectations remain unchanged this week. Growth in the June quarter is still expected to be
1.0% (steady compared to last week), 1.0% in the September quarter (steady) and 1.1% in
the December quarter (steady). Forecast
annual growth for 2014 has slipped marginally to 4.1% (from
4.2% last week).

Unemployment expectations are again
unchanged this week. Unemployment is expected to be 5.7% in
the June quarter (steady compared with last
week), 5.5% in the September quarter (steady) and 5.5% in
the December quarter (steady).

Statistics
New Zealand last week announced a current account deficit
for the March 2014 quarter of 2.8% of GDP, lower
than the 3.1% forecast by iPredict. The forecast deficit
for the June quarter is now 3.0% (steady
compared with last week), 3.7% in the September quarter (steady) and 4.0% in
the December quarter (up from 3.9% last
week).

The probability of a fiscal surplus in 2014/15 has slipped to
84% (compared with 86% last week). The surplus forecast for
2014/15 is 0.42% of GDP (down from 0.43% last week) while
the forecast for the 2015/16 surplus is 0.974% of GDP
(steady), and the forecast surplus for 2016/17 is 2.00% of GDP
(steady).

Inflationary expectations are unchanged this
week and continue to remain below the Reserve Bank’s 2%
target midpoint through 2014. Annual inflation to the end
of the June quarter is expected to be 1.7%,
(steady), 1.6% in the September quarter (steady) and 1.8% in
the December quarter(up from
1.7%).

Interest rate expectations are broadly stable this
week. The market is forecasting a 79% probability that the
Reserve Bank will increase the Official Cash Rate by a
further 25 basis points at its next review on 24 July (down
from 80% last week). Compared with the rate of 2.5% at the
start of 2014, the market is pricing that the OCR will be up
95 basis points in July (steady), 103 in September (down from 104), 114 in October (steady), 124 inDecember (steady), 130 in January 2015 (up from 129) and 146 in March 2015 (up from
145).

All current
party leaders, except for Maori Party co-leader Tariana
Turia, are strongly expected to remain in their roles until nomination
day with at least 93% probability. The party vote turnout is now expected to be
74.1% (up from 73.4% last week) and comparable with the
74.2% turnout in 2011.

Of major parties, National is expected to win 44.1% of the
party vote (steady compared with last week). Labour is steady on 28.6% and the Green Party is up to 12.1%, from 11.5%
last week and 10.3% the week before.

Of smaller parties, NZ First’s expected party vote is down
to 5.2%, from 6.3% last week and 6.1% the week before. The
Conservative Party’s forecast party
vote has recovered to 4.0% from 3.4% last week and 3.9% the
week before, but is still short of the 5% threshold required
for parliamentary representation unless it wins an
electorate seat. Act is steady on 2.1% while UnitedFuture
is down to 0.4% (from 0.5% last week). Amongst other
smaller parties, the Internet Mana alliance is expected to
win 2.1% (steady), the Maori Party 0.9% (steeady), and the Aotearoa Legalise Cannabis Party 0.3%
(up from 0.2%).

Electorate
Contests

Act’s probability of winning at least
one electorate seat is 81%, down from 82% last week, but its
expected electorate representation is up to 0.85 MPs, from
0.82 last week. The market is pricing that it now has an
80% probability of winning Epsom (down from 88%).

The Conservative Party’s probability of
winning at least one seat has risen slightly to 39% (from
36% last week), and its expected electorate representation
is also up to 0.39 MPs from 0.35 MPs last week. The
Conservatives are not expected to win any specific
electorate, however have a 35% probability of winning in East Coast Bays (steady).

UnitedFuture has a 79% probability of
winning at least one seat (steady compared with last week)
and its expected electorate MP representation is 0.79 MPs
(steady). Its probability of winning Peter Dunne’s Ohariu electorate has eased to 77% (from
79% last week).

In the Maori electorates, Mana now has an 85% probability of
winning at least one seat (up from 80% last week) and its
expected electorate representation is 1.0 electorate MPs, up
from 0.98 MPs. The Maori Party is in serious trouble. It
now has just a 43% probability of winning a seat, (down from
60% last week) and its expected electorate representation is
just 0.51 MPs, down from 0.75 MPs.

Mana’s probability
of winning Te Tai Tokerau is up to 85% (from 79%
last week) but its chance of winning Waiariki is down to 25% (from 33% last
week and 40% the week before). Maori Party Leader Te Ururoa
Flavell now has just a 45% probability of winning the seat,
down from 57% last week. The probability the Maori Party
will retain Tariana Turia’s Te Tai Hauauru electorate is now down to
11%, from 13% last week and 17% the week before, with Labour
favoured to win with 89% probability, up from 85% last week
and 80% the week before.

The Greens and NZ First continue not to be expected to
win electorate seats.

The four most marginal general
seats, excluding those mentioned above, are Palmerston
North, Waimakariri, Port Hills and Te Atatu.

In Palmerston North, National’s Jono
Naylor has squeezed into first place with a 50% probability
of edging out Labour’s Ian Lees-Galloway, on 48%.

There
has also been a change in forecast winner in Waimakariri, with National’s Matthew
Doocey now having a 53% probability of beating Labour’s
Clayton Cosgrove.

In Port Hills, Labour’s Ruth Dyson has
recovered and now has a 60% probability of retaining her
seat (up from 50% last week) from National’s challenger,
Nuk Korako.

In Te Atatu, Labour’s Phil Twyford
continues to have a 60% probability of holding the seat
ahead of National challenger Alfred
Ngaro.

Election Result & Alternative
Scenarios

Based on the party-vote and
electorate forecasts results above, Parliament would consist
of: National 55 MPs (steady compared with last week), Labour
36 MPs (up from 35), the Greens 15 MPs (up from 14), NZ
First 7 MPs (down from 8), Act 3 MPs (steady), Internet-Mana
3 MPs (steady) and UnitedFuture 1 MP (steady). Assuming the
Maori Party did not win Waiariki, it would no MPs (down from
1). Parliament would have 120 MPs and a government would be
required to have the support of 61 MPs on confidence and
supply.

Under this scenario, National, Act and
UnitedFuture would have only 59 seats and could not govern.
National could govern with the support the NZ First party
with whom it would hold 62 seats. However, Labour would
also be able to form a government with Labour, Greens,
Internet-Mana and NZ First, with 61 seats. NZ First would
therefore hold the balance of power and be in a position to
choose whether New Zealand had a National or Labour
government.

Were the Maori Party to win Waiariki but the
Conservative Party to miss out on East Coast Bays, there
would be a one-seat overhang with all other parties having
the same seat forecasts as above. National, Act, United
Future and the Maori Party would hold a combined 60 seats
and could not form a government but nor could any Labour-led
combination without NZ First, which would have the balance
of power.

Given speculation National may negotiate with
the Conservative Party over an electorate accommodation,
iPredict has also projected a scenario based on the
market’s party vote and electorate forecasts, but with the
addition of the Conservative Party winning an electorate.
Under that scenario, Parliament would consist of: National
53 MPs, Labour 35 MPs, Greens 15 MPs, NZ First 6 MPs,
Conservatives 5 MPs, Act 3 MPs, Internet Mana 3 MPs and
UnitedFuture 1 MP. Parliament would have 121 MPs and a
government would be required to have the support of 61 MPs
on confidence and support. National would be able to govern
with the support of the Act, Conservative and UnitedFuture
parties, who together would hold 62 seats.

In any case,
however, iPredict’s bundle of stocks forecasting NZ First’s decision-making should it
hold the balance of power indicates Mr Peters would support
a National-led Government. There is a 56% probability Mr
Peters would support a National-led government (up from 50%
last week) and a 3% probability he would give confidence and
supply to neither National nor Labour (down from 6%) which
would favour the larger bloc which the market indicates
would be National-led. There is a 39% probability Mr Peters
would support a Labour-led Government, down from 43%
probability last week.

Overall, National now has an 80%
probability of leading the next government, down from 81%
last week.

Post Election
Developments

David Cunliffe’s position as Labour
leader continues to improve, although overall his future
appears bleak. There is now a 50% probability he will
depart as leader by the end of 2014 (down from 53% last week
and 56% the week before), an 88% probability he will depart
by the end of 2015 (down from 89%), a 91% probability he
will depart by the end of 2016 (down from 92%), and a 98%
probability he will depart by the end of 2017 (down from
99%).

Grant Robertson continues to be strongly favoured to
succeed Mr Cunliffe. He has a 70% probability of being the
next Labour leader (steady compared with
last week), followed by Jacinda Ardern on 9% (up from 8%
last week). David Parker and Andrew Little both have a 5%
probability of being the next Labour leader, the former
having slumped from 16% over the last week.

In National,
John Key’s position has eased
marginally. He now has a 43% probability of departing as
leader by the end of 2015 (up from 41% last week), a 63%
probability of departing by the end of 2016 (steady), and an
81% probability he will depart by the end of 2017
(steady).

Steven Joyce remains favoured to succeed Mr Key
as National Party leader, and has a 42%
probability (steady, followed by Judith Collins on 17%
probability (up from 16%) and Simon Bridges on 8% (down from
10%).

iPredict
Ltd is owned by Victoria University of Wellington. Details
on the company and its stocks can be found at www.ipredict.co.nz. The weekly
political update is prepared by Exceltium Ltd on a pro bono
basis and is based on a snapshot taken at a random time each
week. This week’s was taken at 9.16 am
today.

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